Buying a two-flat, three-flat or four-unit building, living in one unit and renting out the others is one of the most practical ways to own in Chicago. It's often called house hacking: your tenants help pay your mortgage while you build equity in a larger building than you could likely afford on your own. Chicago has thousands of these buildings, and the financing has rarely been more accessible.
You Can Buy With 5% Down
Since November 2023, Fannie Mae has allowed as little as 5% down on owner-occupied 2-4 unit homes. Before that change, a two-unit required 15% down and a three- or four-unit required 25%. On a $750,000 building, that's the difference between $37,500 and $112,500 or more at closing.
FHA loans allow 3.5% down on owner-occupied 2-4 unit buildings, with lower loan limits and some extra rules, covered below.
What It Does to Your Monthly Payment
Here's an illustrative $750,000 two-flat bought with 5% down, where you live in one unit and rent the other:
Monthly | |
|---|---|
Loan amount: $712,500 at 7.32% | |
Principal and interest | $4,894 |
Taxes, insurance and PMI (est.) | $1,600 |
Total payment | $6,494 |
Rent from the second unit (est.) | −$2,400 |
Your net monthly housing cost | $4,094 |
Rate from Freddie Mac's 30-year average for Oct. 22, 2026. Taxes, insurance, PMI and rent are illustrative. Your lender will give exact numbers.
You live in a $750,000 building for about $4,100 a month. In a three-flat, two rental units can cover a much larger share of the payment.
Rent Helps You Qualify
Lenders typically count a portion of the expected rent from the other units, often 75%, as income when deciding how much you can borrow. The 25% haircut covers vacancy and upkeep. That can make a larger building possible on your income than a single-family home at the same price.
Rental income rules vary by lender and loan type, including whether you need landlord experience or a current housing payment. Ask your lender exactly how they'll treat the rents before you shop.
2026 Loan Limits in Cook County
Building | Conventional limit | FHA limit |
|---|---|---|
Two-unit | $1,066,250 | $693,050 |
Three-unit | $1,288,800 | $837,700 |
Four-unit | $1,601,750 | $1,041,125 |
These are loan amounts, not prices. With 3.5% down, the FHA two-unit limit works for two-flats up to roughly $718,000. With 5% down, the conventional limit covers two-flats up to about $1.12 million.
FHA vs. Conventional
FHA: 3.5% down
- Lower down payment and more flexible credit requirements
- Lower loan limits, which can rule out pricier buildings
- Upfront and monthly mortgage insurance; the monthly premium usually lasts for the life of the loan unless you refinance
- For three- and four-unit buildings, a self-sufficiency test: the expected rent has to be enough to cover the full monthly payment
Example: a $700,000 two-flat with FHA means $24,500 down and a $675,500 loan. At 7.32%, principal and interest run about $4,640, plus roughly $310 a month in mortgage insurance, before taxes and homeowners insurance.
Conventional: 5% down
- Higher loan limits
- No self-sufficiency test on three- and four-units
- Private mortgage insurance that can be removed once you reach enough equity
- Generally stricter credit and reserve requirements
Which is better depends on the building, your credit and how long you plan to keep the loan. Run both with your lender.
You Have to Live There
Both programs are for owner-occupants. You'll sign a statement that you intend to live in the building as your primary home, typically for at least a year. These loans aren't a back door to investor financing; investors buying 2-4 units generally need 25% down. We cover that side in Buying a Chicago 2-4 Unit as an Investor.
Living With Your Tenants
Being an on-site landlord has advantages: you see problems early and tenants tend to take care of a building the owner lives in. Chicago also treats owner-occupied buildings with six or fewer units differently under its Residential Landlord and Tenant Ordinance, though state law still applies. Talk to a real estate attorney about which rules cover your building before you sign your first lease.
What to Look for in the Building
- The unit you'll live in. It's your home; make sure it works for you, not just the spreadsheet.
- Existing leases. If your unit is occupied, find out when it will be vacant. See Should You Sell Your Chicago Multi-Unit Occupied or Vacant? for how Chicago's notice rules work.
- Separate utilities. Separately metered heat and electric keep tenant costs off your bill.
- Big-ticket items. Roof, masonry, porches, boilers and water heaters. Budget for them before you need them.
- Realistic rents. Base your math on what similar units in the neighborhood actually rent for.
Start Here
Talk to a lender first so you know your budget and how your rental income will count. Then look at buildings with your actual numbers in hand. Our free Chicago 2-4 Unit Checklist has an owner-occupant section, and our page for Chicago multi-unit specialists covers the full process.
Talk to Joe and Katherine Tighe. Email [email protected], call Joe at (312) 345-5353, or call Katherine at (708) 847-9913.
This post is general information, not financial or legal advice. Loan terms, rates and limits change; confirm current details with your lender.
